Staying Financially Secure Post-Retirement – 5 Financial Tips When Planning for Retirement
Posted on Tuesday, May 30th, 2017 | By IndusInd Bank
Retirement is a reality that one needs to be very serious about, whether you are enjoying in your 20s or living in your 60s. When it comes to the subject of retirement, the right plan of action, a lot of commitment, and up to date information can take you a long way. Following are 5 financial tips that you must keep in mind when planning for your retirement.
- Have a Retirement Plan with Clear Goals: While it may seem obvious that one must have a retirement plan, you would be surprised to know how many people fail to have an effective plan for a comfortable retirement. Not only do you need to have a plan, but you need to formulate one with a properly defined and quantified retirement corpus. Prior to settling on a corpus, carefully assess all your post-retirement expenses and liabilities that you are liable to incur.
- Create an Estimate of Your Corpus: To have a general idea of what your quantified retirement corpus will amount to, you need to create an estimate based on your income and living expenses amounted during your working years. Be sure to make provisions for exigencies and the impact of future inflations. Through these calculations, you will be able to arrive at the savings required to meet your estimated quantified retirement corpus.
- Open a Savings Account: The trick is to spend less than you earn and save the difference for good. By definition, a savings account is a deposit account which bears interest at a fair rate. It is one of the most desirable liquid investments as it facilitates saving. With banks nowadays coming up with innovative offers, it is the perfect time to open a savings account. From free add-on accounts to varying discounts on standard lockers, the offers on savings account include a range of benefits.
- Invest to Build Assets: An asset is something that generates positive cash inflow. Regardless of the age at which you plan to retire, you need to start building your assets from early onward so they may grow at a rate good enough to reach the desired corpus value needed at retirement. Building assets requires you to invest carefully, taking the market and its fluctuations into consideration. When it comes to making your investments, it is crucial to know what works and what does not.
- Types of Investments: Investment instruments vary in nature. Traditionally, long term growth has been found to be faster in equities and real estate investments. Bonds, government savings schemes, and gold are other key instruments of investment. One must work out an optimal mix of these instruments to reach the targeted retirement corpus. Mutual Funds are a good platform for investing across the above instruments as they offer diversification and expert management. You must invest in products for long term, with returns from equity stocks and equity-based mutual funds becoming tax-free after a year of holding, and monitor your portfolio regularly for adequate realignment.
- Invest in Good Retirement Plans: While you can invest across any of the instruments stated above, today there are numerous, tailor-made retirement plans available. While Mutual Funds and insurance companies offer specific retirement schemes, the National Pension System (NPS) by the Government of India is a well-designed and strong retirement product.
- Using Home Ownership for Retirement Income: An option like a reverse mortgage is another way for retirees to generate a constant source of income, and it is tax-free. With a reverse mortgage, you pledge your house with a bank to receive regular income, depending on the valuation of your house, for a fixed period. You are not required to repay the debt as the house can be sold off or vacated once the pledge period is over. The income generated from a reverse mortgage can even run till your lifetime.